R&D spending intensity of private versus public firms: the role of cashflow, leverage and information quality

Purpose: This study provides a large sample comparison of R&D spending intensity in private and public firms and the extent to which these firms’ unique characteristics affect their R&D spending rate.

Design/method/approach: The study compares both private and public data from UK firms for the period 2006-2016, generating a total matched 232,029 firm-year observations, and applies a probability model technique to our large panel datasets.

Findings: We uncover that private firms show lower R&D spending intensity compared to their public counterparts. Our evidence also shows that privately owned firms in the technological (non-technological) sector display higher (lower) probability of R&D spending intensity. Compared with public firms, we further observe that the intensity of private firms’ R&D spending increases with higher internal cash flow, leverage, and industry information quality. Our results remain robust to alternative econometric models.

Originality/value: By combining both private and public firms’ datasets, we are able to provide new evidence to suggest that the intensity of private firms’ R&D spending is dependent on internal cash flow, leverage and the industry information level. In fact, to the best of our knowledge, this is the first study that explores these relationships.